Draft “New” U.S. Regulatory “System”

This so-called “new” regulatory “system” for the US – at least on
the first draft – looks like it is simply going to add a few more
regulators into an already over-governed financial system. Adding in
more regulators to a system in which, even at the lowest count, there
are more than 54 I cannot see as an improvement. From prior experience
all I can see it doing is increasing the amount of buck-passing, adding
yet another reporting layer and making it even less clear than it
already is as to who it is a given financial institution has to listen
to.

If you are going to have a regulated system at least make it
bloody clear who is responsible and then give them the powers to deal
with most, if not all, problems. Then trust them to do their jobs – i.e.
get out of the way.

The Australian example is a good one – the government delegated
regulatory powers to APRA. There is little doubt over who regulates what
– in Australia APRA deals with systemic and individual financial
institutional risk – banks, insurers, the lot. The ASX deals with listed
companies where it has anything to do with information to shareholders.
ASIC deals with companies and any non-APRA regulated small financial
entities. The individual States have some responsibilities with respect
to consumer protection. AUSTRAC deals with money laundering and some
elements of criminal behaviour. The Federal Police deal with other
alleged criminal activity.

Even that takes a while to say – and does leave some overlaps, but it
is nothing compared to the situation in the USA. At least I can get
most ofthe Australian system into one paragraph.

I have always thought the correct way to deal with a mess was to tidy
it up. The suggested system seems to amount to clean up a mess by
throwing more rubbish on it. It is an innovative solution to the
problems – but I cannot see it as brave, useful or intelligent. The US
has only just sorted out how to go to Basel II – it has not yet been
implemented.

If I can put in my suggestion – other than a free banking system
(unlikely to be politically possible) the best solution would be fairly
simple. Make the Fed responsible as the sole regulator of all non-State
chartered financial institutions, insurance and banking alike. Close the
FDIC and allow private sector insurers into the market. Close the OCC
and all of the other parts of the alphabet soup that are currently
failing to do their jobs.

Close down Fannie, Freddie, Sallie, Maggie (or whatever the rest are
called) and the rest – if they need a federal guarantee (implicit
or explicit) to do their jobs then they probably should not be doing
it. Sell off all of their assets and then the US government makes
good on all outstanding liabilities – and the shareholders lose their
holdings unless by some miracle they are actually worth something.

Replace US accounting standards with proper ones – IFRS will do. The
Fed then implements Basel II the way they wanted to do it (which is also
the should be done) – not the half-arsed way they have had to do to get
it past the FDIC.

Get all that done and you would have a “New Regulatory System” – and
one you could be proud of. As it is you are just going to make a bad
si